00011746102012-11-082013-11-070001174610pt:S000042798Member2012-11-082013-11-070001174610pt:S000042798Memberpt:C000132381Member2012-11-082013-11-07pureiso4217:USD2013-11-07Other2013-11-07PROSHARES TRUST0001174610false2013-11-072013-11-07<div style="display:none">~ http://www.ProShares.com/role/ScheduleAnnualFundOperatingExpensesProSharesInvestmentGrade-InterestRateHedged column period compact * ~</div><div style="display:none">~ http://www.ProShares.com/role/ScheduleExpenseExampleTransposedProSharesInvestmentGrade-InterestRateHedged column period compact * ~</div><b>PROSHARES INVESTMENT GRADE&#150;INTEREST RATE HEDGED</b><b>Investment Objective </b>ProShares Investment Grade&#8212;Interest Rate Hedged (the &#8220;Fund&#8221;) seeks investment results, before fees and expenses, that track the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index (the &#8220;Index&#8221;).<b>Fees and Expenses of the Fund </b>The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.<b>Annual Fund Operating Expenses</b><br/>(expenses that you pay each year as a percentage of the value of your investment)0.0030.0050.008-0.0050.003September 30, 2015<b>Portfolio Turnover </b>The Fund pays transaction costs, such as commissions, when it buys and sells securities (or &#8220;turns over&#8221; its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when the Fund&#8217;s shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example above, affect the Fund&#8217;s performance. The Fund&#8217;s portfolio turnover rate is calculated without regard to cash instrument or derivatives transactions. If such transactions were included, the Fund&#8217;s portfolio turnover rate would be significantly higher. The Fund has not yet commenced operations as of the date of this Prospectus. Thus, no portfolio turnover information is provided for this Fund.&#8220;Other Expenses&#8221; are based on estimated amounts for the current fiscal year.<b>Example:</b>This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds.<br/><br/>The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund&#8217;s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:31205In addition, investors may pay brokerage commissions on their purchases and sales of the Fund&#8217;s shares. These costs are not reflected in the example or the table above.The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund&#8217;s shares. These costs are not reflected in the example or the table above.<b>Principal Investment Strategies </b>The Index (Bloomberg Ticker: CFIIIGHG) is comprised of (a) long positions in USD-denominated investment grade corporate bonds issued by both U.S. and foreign domiciled companies; and (b) short positions in U.S. Treasury notes or bonds (&#8220;Treasury Securities&#8221;) of, in aggregate, approximate equivalent duration to the investment grade bonds. In entering these positions, the Index seeks to achieve an overall effective duration of zero.<br/><br/>By taking short Treasury Security positions (of an aggregate dollar value not exceeding the aggregate dollar value of the Fund&#8217;s assets), the Index seeks to mitigate the potential negative impact of rising Treasury interest rates (&#8220;interest rates&#8221;) on the performance of investment grade bonds (conversely limiting the potential positive impact of falling interest rates). The short positions are not intended to mitigate other factors influencing the price of investment grade bonds, such as credit risk, which may have a greater impact than rising or falling interest rates.<br/><br/>The long investment grade bond positions included in the Index are designed to represent the more liquid universe of investment grade bonds offered within the United States. Currently, the bonds eligible for inclusion in the Index include all investment grade bonds that are issued by U.S. and internationally domiciled companies that: are fixed rate; have a minimum rating of Baa3/BBB- by either Moody&#8217;s Investors Service, Inc. (&#8220;Moody&#8217;s&#8221;) or Standard and Poor&#8217;s Financial Services, LLC (&#8220;S&amp;P&#8221;); have a minimum face amount outstanding of $1 billion; and have at least five and a half (5.5) years until maturity. The Index is reconstituted and rebalanced (including a reset of the interest rate hedge) on a monthly basis.<br/><br/>Relative to a long-only investment in the same investment grade bonds, the Index should outperform in a rising interest rate environment and underperform in a falling or static interest rate environment. Performance of the Index could be particularly poor if investment grade credit deteriorates at the same time that Treasury interest rates fall. In addition, the performance of the Index, and by extension the Fund, depends on many factors beyond rising or falling interest rates, such as the perceived level of credit risk in the investment grade bond positions. These factors may be as or more important to the performance of the Index than the impact of interest rates. As such, there is no guarantee that the Index, and accordingly, the Fund, will have positive performance even in environments of sharply rising interest rates in which the short positions might be expected to mitigate the effect of such rises. The Index may be more volatile than a long-only position in the same investment grade bonds.<br/><br/>As of November 1, 2013, the Index was composed of approximately 457 bonds from approximately 151 different issuers.<br/><br/>In addition, as of November 1, 2013, 75% of the investment grade bonds that comprise the Index were issued by U.S. domiciled companies and 25% of the investment grade bonds that comprise the Index were issued by foreign domiciled companies.<br/><br/>For a further description of the Index, please see &#8220;Description of the Index&#8221; in the Fund&#8217;s Full Prospectus.<br/><br/>The Fund invests in a combination of debt securities and derivatives that ProShare Advisors believes should track the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in component securities (i.e., securities of the Index) and invest at least 80% of its total assets in investment grade bonds.<br/><br/>The types of debt securities and derivatives that the Fund will principally invest in are set forth below. Cash balances will typically be held in money market instruments.<ul type="square"><li><b>Debt Securities</b> &#8212; The Fund invests in debt securities, primarily investment grade bonds, that are issued by corporate issuers that are rated &#8220;investment-grade&#8221; by either Moody&#8217;s or S&amp;P. Credit rating agencies evaluate issuers and assign ratings based on their opinions of the issuer&#8217;s ability to pay interest and principal as scheduled. The bonds invested in by the Fund may include USD-denominated bonds issued by foreign-domiciled companies that are offered for sale in the United States.</li></ul><ul type="square"><li><b>Derivatives</b> &#8212; The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset or assets, such as stocks, bonds or funds (including exchange-traded funds (&#8220;ETFs&#8221;)), interest rates or indexes. The Fund primarily invests in derivatives as a substitute for obtaining short exposure in Treasury Securities but may also do so to a limited extent to obtain investment grade bond exposure. These derivatives principally include:</li></ul><blockquote><ul type="square"><li><b>Futures Contracts</b> &#8212; Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of asset at a specified time and place or, alternatively, may call for cash settlement. The Fund will primarily utilize short futures contracts on Treasury Securities.</li></ul></blockquote> ProShare Advisors employs a passive approach to investing that is designed to track the performance of the Index. The Fund attempts to track the performance of the Index by investing all, or substantially all, of its assets in the types of investments that make up the Index or in financial instruments that provide similar exposure. The Fund may invest in or gain exposure to only a representative sample of the securities in the Index or to securities or financial instruments not contained in the Index, with the intent of obtaining exposure with aggregate characteristics similar to those of the Index, including the general credit profile of the Index. ProShare Advisors does not invest the assets of the Fund in securities or financial instruments based on ProShare Advisors&#8217; view of the investment merit of a particular security or instrument, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. In seeking to match the general credit profile of the Index, ProShare Advisors will rely solely on credit ratings provided by Moody&#8217;s and S&amp;P. To the extent the Fund is overweight in a security that is perceived by the markets to have increased credit risk, the Fund&#8217;s performance will be adversely affected.<br/><br/>The Fund seeks to remain fully invested at all times in securities and/or financial instruments that, in combination, provide exposure to the Index without regard to market conditions, trends, direction or the financial condition of a particular investment grade bond issuer.<br/><br/>The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of November 1, 2013, the Index was concentrated in the industrials and the financial services industry groups, which comprised approximately 56.81% and 32.09%, respectively, of the Index&#8217;s long exposure.<br/><br/>Please see &#8220;Investment Objective, Principal Investment Strategies and Related Risks&#8221; in the Fund&#8217;s Full Prospectus for additional details.<b>Principal Risks </b><b>You could lose money by investing in the Fund. </b><ul type="square"><li><b>Debt Instrument Risk</b> &#8212; The Fund will invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, issuer credit risk and other factors. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer&#8217;s default on its payment obligations. Such factors may cause the value of an investment in the Fund to change.</li></ul> <ul type="square"><li><b>Hedging Risk</b> &#8212; The Index seeks to mitigate the potential negative impact of rising Treasury interest rates on the performance of investment grade bonds. The short positions in Treasury Securities are not intended to mitigate credit risk or other factors influencing the price of investment grade bonds, which may have a greater impact than rising or falling interest rates. There is no guarantee that the short positions will completely eliminate the interest rate risk of the long investment grade bond positions. While the Fund seeks to achieve an effective duration of zero, the hedge cannot fully account for changes in the shape of the Treasury interest rate (yield) curve. Because the duration hedge is reset on a monthly basis, interest rate risk can develop intra-month. The Fund could lose money if either or both the Fund&#8217;s long and short positions produce negative returns.</li></ul><blockquote> When interest rates fall, an unhedged investment in the same investment grade bonds will outperform the Fund. Performance of the Fund could be particularly poor if investment grade credit deteriorates at the same time that Treasury interest rates fall. Furthermore, when interest rates remain unchanged, an investment in the Fund will underperform a long-only investment in the same investment grade bonds.<br/><br/> There is no guarantee the Fund will have positive returns, even in environments of sharply rising Treasury interest rates in&nbsp;which the Fund&#8217;s short positions might be expected to mitigate the effects of such rises.</blockquote> <ul type="square"><li><b>Risks Associated with the Use of Derivatives</b> &#8212; The Fund obtains investment exposure through derivatives, which may be considered aggressive. Investing in derivatives may expose the Fund to greater risks than investing directly in the reference asset(s) underlying those derivatives, such as liquidity risk and increased correlation risk (each as discussed below). When the Fund uses derivatives, there may be imperfect correlation between the value of the reference asset(s) and the derivative, which may prevent the Fund from achieving its investment objective. Any financing, borrowing and other costs associated with using derivatives may also have the effect of lowering the Fund&#8217;s return.</li></ul> <ul type="square"><li><b>Correlation Risk</b> &#8212; A number of factors may affect the Fund&#8217;s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. This may be due, in many cases, to the impact of a limited trading market in the component Index bonds on the calculation of the Index. Other factors that may adversely affect the Fund&#8217;s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such securities may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. As a result, developments regarding the performance of those securities in which the Fund invests could result in a greater decline in net asset value (&#8220;NAV&#8221;) than would be the case if the Fund&#8217;s holdings precisely replicated the securities and weights of the Index. The Fund may also be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding Index reconstitutions or other Index rebalancing events may hinder the Fund&#8217;s ability to meet its investment objective.</li></ul> <ul type="square"><li><b>Credit Risk</b> &#8212; Due to its investments in investment grade bonds, the Fund will be subject to the risk that an issuer is unwilling or unable to make timely payments to meet its contractual obligations. At times when credit risk increases, the price of the investment grade bonds that comprise the Index (and therefore the value of the Fund) will typically decrease. Conversely, when credit risk of the bonds decreases, the level of the Index (and the value of the Fund) will typically increase. In using sampling techniques, the Fund may be overexposed to certain securities that would adversely affect the Fund upon the markets&#8217; perceived view of increased credit risk or upon a downgrade or default of such securities. <b>The hedging methodology of the Index does not seek to mitigate credit risk.</b></li></ul> <ul type="square"><li><b>Interest Rate Risk</b> &#8212; Interest rate risk is the risk that debt securities or related financial instruments may fluctuate in value due to changes in interest rates. Commonly, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline. The value of securities with longer maturities may fluctuate more in response to interest rate changes than securities with shorter maturities. The Index (and therefore the Fund) seeks to mitigate this risk by taking short positions in Treasury Securities; such short positions should increase in value in rising interest rate environments and should decrease in value in falling interest rate environments, thereby mitigating potential gains and losses in the investment grade bond positions of the Fund arising from changing Treasury interest rates. When interest rates fall, an unhedged investment in the same investment grade bonds will outperform the Fund. Because the duration hedge is reset on a monthly basis, interest rate risk can develop intra-month. Furthermore, while the Index is designed to hedge the interest rate exposure of the long investment grade bond positions, it is possible that a degree of exposure may remain even at the time of rebalance.</li></ul> <ul type="square"><li><b>Exposure to Foreign Investments Risk</b> &#8212; Exposure to securities of foreign issuers may subject the Fund to increased risk. Various factors related to foreign investments may negatively impact the Index&#8217;s performance, such as: i) the possibility that a foreign government may withhold portions of interest and dividends at the source; ii) less publicly available information about foreign issuers; and iii) less certain legal systems in which the Fund might encounter difficulties or be unable to pursue legal remedies. Foreign investments also may be more susceptible to political, social, economic and regional factors than might be the case with U.S. securities.</li></ul> <ul type="square"><li><b>Early Close/Late Close/Trading Halt Risk</b> &#8212; An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.</li></ul> <ul type="square"><li><b>Financial Services Industry Debt Risk</b> &#8212; The Fund is subject to risks related to the debt issued by companies in the financial services economic sector to the same extent as the Index is so concentrated, including effects on issuer credit from: extensive governmental regulation and/or nationalization that affects the scope of a financial services company&#8217;s activities, the prices that financial services companies can charge and the amount of capital they must maintain; adverse effects from increases in interest rates; effects on profitability by loan losses, which usually increase in economic downturns; the severe competition to which banks, insurance, and other financial services companies may be subject; and increased inter-industry consolidation and competition in the financial sector.</li></ul> <ul type="square"><li><b>Fixed Income and Market Risk</b> &#8212; The fixed income markets can be volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with these markets may fluctuate dramatically from day-to-day. Fixed income markets are subject to adverse issuer, political, regulatory, market or economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Further, fixed income securities in the Index may underperform other fixed income investments that track other markets, segments and sectors. Volatility in the markets and/or market developments may cause the value of an investment in the Fund to decrease.</li></ul> <ul type="square"><li><b>Industrial Industry Debt Risk</b> &#8212; The Fund is subject to risks related to the debt issued by companies in the industrial economic sector to the same extent as the Index is so concentrated, including effects on issuer credit from: supply and demand both for their specific product or service and for industrial sector products in general; decline in demand for products due to rapid technological developments and frequent new product introduction; effects on securities prices and profitability from government regulation, world events and economic conditions; and risks for environmental damage and product liability claims.</li></ul> <ul type="square"><li><b>Liquidity Risk</b> &#8212; In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProShare Advisors. Markets for the securities or derivatives in which the Fund invests may be disrupted by a number of events, including but not limited to economic crises, natural disasters, new legislation, or regulatory changes inside or outside the U.S. For example, regulation limiting the ability of certain financial institutions to invest in certain securities would likely reduce the liquidity of those securities. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with the Index.</li></ul> <ul type="square"><li><b>Market Price Variance Risk</b> &#8212; The Fund&#8217;s shares are listed for trading on the BATS Exchange and can be bought and sold in the secondary market at market prices. The market prices of shares will fluctuate in response to changes in the value of the Fund&#8217;s holdings and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at a price equal to the Fund&#8217;s holdings. Because of the nature of investment grade bonds, shares may trade at a larger premium or discount to the value of the Fund&#8217;s holdings than shares of many other ETFs. The Fund&#8217;s investment results are measured based upon the daily NAV of the Fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by investors creating and redeeming directly with the Fund.</li></ul> <ul type="square"><li><b>Portfolio Turnover Risk</b> &#8212; Active market trading of the Fund&#8217;s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage and other transaction costs and may result in increased taxable capital gains. Such activity may have a particularly significant impact on funds (like the Fund) that seek long exposure to investment grade bonds.</li></ul> <ul type="square"><li><b>Short Sale Exposure Risk</b> &#8212; The Fund may seek inverse or &#8220;short&#8221; exposure through financial instruments such as futures contracts, which may cause the Fund to be exposed to certain risks associated with selling securities short. These risks include, under certain market conditions, an increase in the volatility and decrease in the liquidity of securities underlying the short position, which may lower the Fund&#8217;s return, result in a loss, have the effect of limiting the Fund&#8217;s ability to obtain short exposure through financial instruments such as futures contracts, or require the Fund to seek short exposure through alternative investment strategies that may be less desirable or may be costly to implement. To the extent that, at any particular point in time, the securities underlying the short position may be thinly traded or have a limited market, including due to regulatory action, the Fund may be unable to meet its investment objective due to a lack of available securities or counterparties. During such periods, the Fund&#8217;s ability to issue additional Creation Units may be adversely affected. Obtaining short exposure through these instruments may be considered an aggressive investment technique.</li></ul> <ul type="square"><li><b>Valuation Risk</b> &#8212; In certain circumstances, portfolio securities may be valued using techniques other than market quotations. The value established for a portfolio security may be different from what would be produced through the use of another methodology or if it had been priced using market quotations. Portfolio securities that are valued using techniques other than market quotations, including &#8220;fair valued&#8221; securities, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that a Fund could sell a portfolio security for the value established for it at any time, and it is possible that a Fund would incur a loss because a portfolio security is sold at a discount to its established value.</li></ul> Please see &#8220;Investment Objective, Principal Investment Strategies and Related Risks&#8221; in the Fund&#8217;s Full Prospectus for additional details.<b>Investment Results </b>Performance history will be available for the Fund after it has been in operation for a full calendar year. After the Fund has a full calendar year of performance information, performance information will be shown on an annual basis. Annual returns are required to be shown and should not be interpreted as suggesting that the Fund should or should not be held for longer periods of time. The Fund may not be suitable for all investors.After the Fund has a full calendar year of performance information, performance information will be shown on an annual basis.<b>You could lose money by investing in the Fund. </b>The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of November 1, 2013, the Index was concentrated in the industrials and the financial services industry groups, which comprised approximately 56.81% and 32.09%, respectively, of the Index&#8217;s long exposure."Other Expenses" are based on estimated amounts for the current fiscal year. ProShare Advisors LLC ("ProShare Advisors") has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse Other Expenses to the extent Total Annual Fund Operating Expenses Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed 0.30% through September 30, 2015. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund's expenses to exceed any expense limitation in place at that time.